Russian Pipeline Monopoly Sets Low Transit Fee for Azerbaijan

Russian oil pipeline monopoly Transneft has agreed to set lower fees for transiting Azerbaijani oil via its Baku-Novorossiisk pipeline in an effort to boost usage and thus revenue, the Kommersant business daily reported Monday, ria.ru reports.

In May 2013, Russia terminated a transit agreement with the State Oil Company of Azerbaijan (SOCAR) because, officials said, Azerbaijan was not shipping the agreed quantities and the pipeline was unprofitable.

Under that deal, the pipeline was to pump 5 million metric tons of crude annually, with a transit fee of $15.67 per metric ton.

Oil exports via the 1,330-kilometer pipeline from the Azeri capital of Baku on the Caspian Sea to the Russian Black Sea port of Novorossiisk were 1.75 million metric tons last year, down from 2.06 million metric tons shipped in 2012.

Transneft said in November that the fee should be 720 rubles ($22 at that time) per metric ton if Azerbaijan wants to pump about 1.5 million metric tons per year, 700 rubles ($21.4) for 1.8 million metric tons annually and less than 400 rubles ($12.2) for over 5 million metric tons per year.

SOCAR rejected the proposal and withdrew from the talks, saying it would send the bulk of its crude through Turkey, via the Baku-Tbilisi-Ceyhan pipeline.

Transneft replied by announcing a temporary shutdown of the Azerbaijani section of the Baku-Novorossiisk pipeline.

On February 18, Transneft reversed its plans to halt Azeri oil deliveries and said a commercial agreement was signed to replace the previous deal. The fee was established at 453.95 rubles per metric ton ($12.7 at the current exchange rate), which is even lower than the previous tariff of $15.67 per metric ton (559 rubles at the current exchange rate).

SOCAR, however, made it clear that it had no intentions to boost its oil deliveries. Transneft has refused to comment on the terms of the agreement.

Analysts said the temporary shutdown proved to be more costly than losses sustained because of low transit fees.